Ladies and gentlemen, good day, and welcome to the Q3 FY 2024 and nine months ended December 31, 2023 post-results conference call of Fortis Healthcare Limited. As a reminder, all participant lines will be in the listen-only mode, and there will be an opportunity for you to ask questions after the presentation concludes.
Should you need assistance during the conference call, please signal an operator by pressing star then zero on your touchtone phone. Please note that this conference is being recorded. I now hand the conference over to Mr. Anurag Kalra, Senior Vice President, Investor Relations at Fortis Healthcare Limited. Thank you, and over to you, Mr. Kalra.
Thank you very much. A very good morning and good afternoon, ladies and gentlemen, and thank you for joining us on our quarter three FY 2024 earnings call. The call is being chaired by Dr. Ashutosh Raghuvanshi, our Managing Director and CEO. With him, we have Mr. Vivek Goyal, our Chief Financial Officer, and I also have my colleagues from Investor Relations and M&A, Amit Mahendru and Avinash Tripathi.
Before we start the call, I would just like to state that, as you're all aware, we are a listed company, and our material subsidiary, Agilus Diagnostics, has filed a DRHP for the proposed IPO in September 2023. In light of the publicity restrictions imposed on Agilus and the company, which, due to the proposed IPO, we would not be in a position to share any further information other than what is already provided in our investor presentation and press release.
Due to these restrictions, we would also not be in a position to clarify or answer any questions on the diagnostics business performance or on the proposed IPO at this point in time. We do appreciate your understanding on this. We will begin the call with some opening comments by Dr. Raghuvanshi on both the consolidated and the hospital business performance, and then we can open the floor for questions and answers. Over to Dr. Raghuvanshi.
Thank you, Anurag. Good morning, and good afternoon, everyone. Thank you for taking time to join us on our Q3 financial year 2024 earnings call today. I wish you all a Happy New Year and hope all of you are doing well. I shall come straight to the results of the quarter and my thoughts on the business performance and way forward.
Our business performance in Q3 has been satisfactory considering the seasonal impact of festivals in some of our key geographies. The hospital business has shown a relatively improved performance compared to the corresponding quarter last year, and predictably slightly lower than the trailing quarter. Our consolidated revenues were at INR 1,680 crores, a growth of 8% versus the corresponding previous quarter. This compares to INR 1,560 crores in Q3 of financial year 2023.
Our consolidated operating EBITDA margin was 16.9% versus 17.7% in the corresponding previous quarter and versus 18.6% in the trailing quarter. To highlight the contribution of hospital operating, EBITDA increased to 88% in Q3 of financial year 2024 versus 76% in Q3 of financial year 2023. This indicates a positive momentum in our hospital business earnings, allowing us to sustain our overall profit margin.
The strength in our hospital business has also largely offset our performance in the diagnostic business. At the PAT level, we reported a profit after tax prior to exceptional items of INR 127 crore compared to INR 131 crore in Q3 of the financial year 2023. Reported PAT stood at INR 134 crore versus INR 142 crore in the corresponding previous year.
Our balance sheet remains healthy, with a net debt to EBITDA of 0.45x compared to 0.41x in Q3 of financial year 2023. Our net debt at the end of Q3, financial year 2024, stands at INR 518 crore against INR 471 crore at the end of Q3 of financial year 2023. Let me now also briefly touch on the consolidated nine-month financial year 2024 result numbers of the company. For the nine months of financial year 2024, our consolidated revenue stood at INR 5,107 crore, a growth of 9.7% over the corresponding previous period.
Operating EBITDA for the period was INR 887 crore versus INR 830 crore for the nine months of financial year 2023, translating into a margin of 17.4% versus 17.8% in the corresponding previous period. PAT, excluding exceptional items for the period, stood at INR 429 crore versus INR 432 crore for nine months of financial year 2023, a marginal decline year-on-year. Reported PAT stood at INR 442 crore versus INR 495 crore in the corresponding previous year.
I'm pleased to share that our hospital business continues to witness a healthy performance and despite the quarter having a seasonality impact, we have shown a better performance on a year-on-year basis. The consolidated profitability number that I shared with you just now clearly reflect this. We have witnessed an occupancy of 64% in Q3 versus 66% in corresponding quarter, owing to an increase in the operational beds by 100, while the occupied beds remained flat year-on-year.
Occupancy levels on a like-to-like basis were at similar levels. ARPOB witnessed a strong growth, growing by 10.6% year-on-year, to reach INR 2.23 crores. The growth was driven by consistent shift towards higher complexity procedures. This year, on an annualized basis, we'll be performing more than 60,000 cardiac procedures, more than 3,500 robotic surgeries, and more than 1,100 transplants, which demonstrates the shift we have been talking about.
All these factors enabled the hospital business revenue to reach revenue of INR 1,389 crores in the quarter, a growth of 10% versus Q3 of financial year 2023. The hospital business operating EBITDA grew 19% to touch INR 251 crores, reflecting a margin of 18% versus 16.7% margin in Q3 of financial year 2023.
The improvement was driven by our consistent focus on improving operational efficiency and optimizing costs against all heads, including general administration, services, repair and maintenance, et cetera. Revenue from international business stood flat at INR 113 crore versus INR 114 crore in the corresponding previous quarter. International patient revenue was flat year-on-year, primarily due to geopolitical reasons in the Middle East and flow of patients from countries such as Iraq and Bangladesh.
You would recall that we have been speaking to you about our portfolio rationalization strategy. To that effect, we have divested to of our loss-making facilities in Chennai. First, the Arcot Road facility in July 2023, followed by the Malar facility, which we concluded last week, leading to an improvement in overall profitability for the company in future.
We are progressing on our brownfield bed expansion, which are expected to incrementally add almost 50% to our existing bed capacity, and when operationalized, we'll eventually see some of our key facilities, such as Shalimar Bagh, FMRI, Mohali, BG Road, and Noida, become more than 450 beds each. This is expected to provide a higher degree of operating leverage in such facilities, translating into healthy margin expansion. Our expansion strategy continues to focus on deepening our cluster presence with the launch of new 70-bedded unit in Ludhiana.
This is the second facility in Ludhiana and the fourth in Punjab. This will take our total bed strength to 800 in the Punjab region. You will also notice that given our focus on bed expansion, we have also, for the first time, provided further granularity on our bed expansion plan in our investor presentation. Close to 2,200 beds in the next four years will come through.
Our focus on strengthening our clinical programs continued through the quarter across all our facilities, in terms of investing in high-end medical infrastructure and onboarding new medical talent. The quarter witnessed addition of several eminent clinicians across various specialties like neurosurgery, oncology, cardiology, gastroenterology, and GI surgery. During the quarter, we commissioned several medical programs and further strengthened medical infrastructure at various facilities.
This includes the UP's first most advanced artificial intelligence-powered state-of-the-art cath lab at Fortis Hospital, Noida, neuro ICU and advanced neuro lab at Fortis Hospital, Faridabad, and launch of cutting-edge surgical robot at Fortis Hospital, Anandapur, Kolkata. Another important aspect to highlight is the ongoing success of our digitization initiatives. Our strides in digital transformation, particularly with the implementation of EMR, are advancing positively.
Revenue from digital channels, such as websites, my Fortis app, and online campaigns, grew by 32% year-on-year, and their contribution over to overall hospital revenues increased to 25.7% versus 21.5% in Q2 of financial year 2024. In this quarter, we have also launched our new patient feedback management system, My Feedback. This platform will enable more engaging experience for our patients, as feedback will be collected through WhatsApp and QR codes.
The application also will also enable collection of feedback and addresses immediate patient concerns through its service request feature. The revenue contribution from the company's focused medical specialties via oncology, orthopedics, renal sciences, cardiac sciences, neurosciences and gastroenterology to overall hospital revenue increased to 61.4% in Q3 from 60.9% in Q3 of financial year 2023.
Specifically, revenue from gastro sciences, neurosciences and oncology grew by 20%, 13%, and 12% respectively, versus the corresponding previous quarter. In summary, our earnings momentum remains healthy, specifically with respect to the hospital business, and this I would expect to continue going forward.
I say this with a sense of conviction as our future levers of growth are well defined in our business plans, whether they be towards our brownfield expansion strategy or towards strengthening our medical programs and technologies, or towards effort to ensure that our patients are delivered a superb patient experience and excellent clinical outcomes. Thank you. And with this, I would like to hand over to Mr. Anurag Kalra to take this forward.
Thank you, sir. Ladies and gentlemen, we will now open the floor for question and answers. May I request the moderator to begin, please?
Thank you very much. We will now begin the question- and- answer session. Anyone who wishes to ask a question may press star and one on their touchtone telephone. An operator will take your name and announce your turn in the question queue. Participants are requested to use only handsets while asking a question. Ladies and gentlemen, we will wait for a moment while the question queue assembles. The first question is from the line of Neha Manpuria from Bank of America. Please go ahead.
Thanks for taking my question, sir. So on the hospital performance, you know, I, the fact that we managed to keep margins flat, despite the, you know, bed addition that we saw and a seasonally weak quarter, does indicate the point that you've mentioned, that we've been able to do a lot of cost optimization and, you know, improvement in efficiency. One, if you could highlight, you know, how much of this is already captured in this 18% margin.
I mean, is there more scope for this to contribute to margins? And second, as we see occupancy improve from, you know, the nine-month number of 66%-67%, on the existing beds, you know, what is the trajectory? I mean, should we see margins crossing the 20% in the very near term, or could that be a little more longer journey? Just trying to understand the, you know, gradient for the margin expansion that we should see in the hospital business.
Yeah, Neha, I can take this question. Vivek this side. Hi. So your margin, as you rightly mentioned, we are moving towards our target, and given earlier of 20% margin by the year end, so that we are expecting. And the main lever for our margin on the occupancy side. As you rightly pointed out, occupancy is slightly lower as against our expectation, and we are below 65% now.
And as we are able to move up on the occupancy side, I think this margin improvement will be easy. And plus, you know, this divestment, as Dr. Raghuvanshi has mentioned about Malar, which is effective from first of February 2024, that will also help in improving the margin.
But, you know, Vivek, if I can be a little more specific here. You know, if I have to say the 18% margin improvement, how much of it would come from Malar divestment? And, you know, how much of it would then come from, let's say, the other efforts that we are, you know, sort of implementing?
Yeah. So I will say around 0.5%-0.6% of the EBITDA margin improvement because of the divestment. The Arcot Road already factored in this quarter, so I'm not counting that. So that will be on the Malar divestment side. Rest will be majorly from the occupancies improvement and some improvement in the cost side. And as you know, some of the hospital, like Ludhiana, only have operationalized only in the December. So this quarter, the result of that hospital will be also improved.
Okay, so you said the Ludhiana impact will flow through in the March quarter, the new facility impact?
Yes.
Okay, understood. My second question on the international patients, you know, that was flat. I know you did mention in your opening comments that, you know, this was because of, you know, certain geopolitical issues. How do we now plan to grow this business, you know, given what's going on in the Middle East, and we don't know when that situation improves. Can this number move up from what we are seeing?
Yeah, yeah. So international business, Neha, this quarter is slightly less as compared to, you know, previous quarter. However, if you see year to date, we are doing quite okay. In the month of January and February, we have seen that the international business has come back to its, you know, September quarter numbers. So we expect this will continue to provide a good, you know, lever for increasing the occupancy and profitability.
Understood. And last, I don't know if you want to answer this question, but you know, if I were to do a simple Consol minus hospital, you know, the residual diagnostic business seems to have seen significant pressure on margins. Is there any one-off cost there? You know, any color that we can provide there? Again, I don't know if you would give any color, but just trying my luck.
Yeah, as Raghuv mentioned, we are not supposed to discuss about the financials of the diagnostic business, but I can—this much I can say, it's some one-off in this term, and they're performing significantly better than the one now.
Thank you, sir.
Thank you. The next question is from the line of Saurabh Kapadia from Sundaram Mutual Funds. Please go ahead.
Yeah. Thanks for the opportunity. So , the first question is on ARPOB . So, this 10%-11% kind of growth, can we sustain? And also do we have levers now further to improve on it, given that now a few beds addition are coming in FY 2025?
Yeah. So, we could see very good ARPOB increase during this quarter, and for the year also, the number is clear. So, we feel, and I think mainly driven by, you know, the high, high-end cases we are able to do, the more complex cases the company is doing, and they're explained by Dr. Raghuvanshi in the initial stage. So, we feel that, may continue, but the ARPOB increase may not be, you know, 10, 11% going forward, because the base is already very high. So we expect ARPOB increase should be somewhere settled around 5%.
Okay. This bed addition will lead to some dilution in the payer mix for next year. That should be the assumption.
Not really, because, you know, the payer mix, we are maintaining at below 20% for the scheme business, and we don't want to disturb that too much because we are having heavy cap, you know, bed addition program, and this payer come handy for filling up this bed. So we are not, we are not trying to play too much in this, but wherever there's the opportunity, we are trying to optimize.
Okay. And my second question is on, you know, the medical talent that you are adding in-
Mr. Kapadia, may I request you to use your handset, sir? Your audio is slightly muffled, sir.
Is that better?
Sir, it's a little low, sir.
Hello?
Use your handset. Yes, sir. This is better.
Yeah. Yeah. So my second question is on the, you know, cost related to medical talent. So has the, you know, entire cost at, is there in this quarter, or how much, you know, cost increase should we build in, for the new talent, what we are adding in?
So the cost of medical talent, relatively speaking for us, has been a little high. Our hypothesis is, as we scale up the hospitals as we are planning and the occupancy numbers increase, in relative terms, it should come down from the current level. I am pretty sure that it will certainly not go above the current level.
Okay. Yeah. Thank you.
Thank you. The next question is from the line of Hardik Doshi from White Whale Partners. Please go ahead.
Hi, can you hear me?
Yes.
Yeah.
Please go ahead, sir.
So, you know, looking at your bed expansion plan, you know, next year, you're looking to add quite a large chunk of the 2,200 beds, almost one third of them, 710 beds. So, you know, while we're looking to exit this year at 20% kind of EBITDA margin, I mean, now, how are you looking next year, you know, this quarter, with the bed addition, we saw a drop in occupancy. Next year, we'll see a lot of bed additions. So, you know, does that mean that there's a drop in margin next year?
Yeah. So next year, you rightly picked that there is a big, you know, bed facility will be coming in. But having said that, this bed capacity, one, it will be coming at a different point of time. Number two, we may not operationalize the full 710 beds, and the bed operationalization will happen as per the occupancy ramp-up thing, because that will be most cost-effective way to, you know, achieve the bed ramp up. So, with that, I don't... because we are not opening up entire beds, and we will be rationalizing the bed operationalization based on the occupancy, so I'm not seeing much impact on the profitability.
Almost all of these beds, except, you know, the Manesar one, the new acquisition thing, is coming in our existing hospital, where, you know, as per our initial estimate, they should start contributing from day one. Because these hospitals in the hospital where this, this bed addition is coming, they are already operating at a very decent occupancy level. So we don't see that type of challenge there on the margin side.
Okay. So then how should we look at margins for FY 2025, then? What is the target?
So we are maintaining our margin guidance, that slowly, as we know, this ramp up will happen with the bed expansion. By next three to four years, we should be aiming towards 25%.
Okay. All right. The other thing was on the expansion and divestment strategy. So, you know, one of the things, most of our bed additions are from the expansions in our existing facilities. But you know, we were trying to get away from, let's say, smaller size hospitals to enable, you know, larger proportion of revenue coming from tertiary care.
If you see, Ludhiana is a 70-bed facility, so is that really gonna act maybe as a feeder to our larger hospitals in Punjab? That's one. And second thing is, we've got these two divestments that we've announced in Chennai. You know, what is the pipeline looking from a divestment perspective?
Yeah, so if I can answer the Ludhiana Two first. You know, Ludhiana Two make a sort of extension to our existing facility. As you know, we are a very strong presence in the Punjab side, and our other hospital, Ludhiana One Hospital, is doing quite okay. And this hospital from the location perspective, Ludhiana Two Hospital, from the location perspective is ideally suited from the clinician as well as from the patient perspective.
So I think it will be extension of Ludhiana One. We should see the performance in a combination of these two hospitals. And with the type of facility we are, we have built here, we are quite hopeful that it will yield good result going forward at a combined level.
As regard your other questions on the divestment, thing, so this is a sort of, a continuous type of exercise. So we keep evaluating our, you know, portfolio, and, depending upon, you know, the, our analysis and the results, we may, look for other hospital also, but right now there is no concrete plan for any of the hospitals. It's not falling in that category for the divestment. Does that answer your question, sir?
Yeah. Just sorry, a quick follow-up. In the next 12 months, I mean, you know, do you think there will be at least a couple of divestments from you?
Not really. So as I said, there is no active thing we are pursuing right now on the divestment side. And one hospital which is very small, we may look the alternative for that, and it's not worth talking also; it is very small hospital.
Okay, thank you.
Thank you. Our next question is from the line of Shyam Srinivasan from Goldman Sachs. Please go ahead.
Yeah, good morning, and thank you for taking my question. Just the first one is on January. I don't know whether you talked about the occupancies, how it's trending, how should you look at quarter four? And just a related question on this first part is, around occupied bed days, right? They have basically been flat, maybe slightly down. So how should we look at the ramping up occupancy for next year? Or, in, in, you know, is it because of the bed additions, do you think occupancy increase will likely be a challenge?
So, Shyam, I can answer this question. Like, you know, last quarter the occupancy is on the lower side because of the two reason. One is, you know, we are our presence in the NCR and Punjab side, because of that, you know, this pollution thing and, you know, the winter season has affected the occupancy levels. And to some extent, you know, we have extended extended our bed capacity, like Ludhiana Two has been added.
Similarly, Mulund, we have added the bed capacity where, you know, the sizable bed capacity has opened. So, that has resulted into the occupancy side. But we are seeing very healthy trend in January, February. And we are quite hopeful that this occupancy trend will will be revived. We expect this to be, you know, towards 70% maybe in the coming quarter and even for next year.
Yes, Vivek, so what is like the January number? Just a factual question. Is it, Q4 is better than Q3?
Yeah, it is definitely better than the Q3. I'm not having the number in front of me, January, but it is better than the Q3.
Helpful. Just the second question is on your slides 20 and 21. I'm just trying to analyze what has happened, in the margin matrix. When I look at FMRI, the QoQ decline was the highest in the top 10 hospitals, right? It's declined QoQ by about 12%, when the company did only 4% decline. And also looks like it may have been the biggest one that has moved across the buckets from, I don't know whether it was in the top one, and it has moved to bucket three. I'm just trying to analyze Q2 versus Q3. So, anything that is happening at some of our flagship hospitals, if you could highlight?
Yeah. So, FMRI, you rightly checked the Shyam, and FMRI is, as you know, are having very good international business. And last quarter, international business was affected because of the reasons explained earlier. So that was the reason for FMRI drop, and there was couple of changes, not couple, one change at the clinician level also. That has impacted the FMRI performance, but the performance has revived in the month of January. As I said, the international business has come back to its normal level, and we have stabilized that FMRI hospital to the September quarter number.
No, no, what was the second point, Vivek? You meant institutional business? Sorry, you were a little fast. What was the second reason?
Okay. So I was saying, one is the international business, I said,
Yeah, that I got.
Yeah. And second is, you know, there was some change in our cardiac specialty. One of our premium clinician has moved out-
Oh.
new will be joining in this quarter. So that's why, you know, that quarter is got affected or that particular business got affected in this quarter.
Understood. And if you could also comment on the margin matrix. Anything to keep in mind? Because I've, we have seen actually. And is it maybe seasonal, I get it, but the 15-20 bucket has seen things slipping into 10-15. So I'm just looking at that. And I'm sure the nine also in has actually changed, right? Maybe something like FMRI has fallen out. I don't know, I don't know which, which are these hospitals. But if you would comment on, is there something that we need to be worried about looking at Q3 margin matrix, or some of it can be explained by seasonality, international patients, et cetera?
Yeah, so, I think one is the FMRI, that is, that has impact, given this impact. And as I mentioned, it has bounced back in the current quarter, and we expect that this hospital will be doing much better during the current quarter. And apart from that, there is no other hospital which is having that type of impact on this margin metrics.
Got it. Thank you. And my last question is just any update on the high court legal anything that is there? Are we still incurring cost retainer fees for some of the lawyers? So if you could just give us an update on both the legal scenario and how the implications on cost? Thank you.
Yeah. So there is not much movement in the legal case. You know, there was a hearing on the potential forensic at the Delhi High Court level, and the hearing was mainly concentrated on the banker side. You know, the bankers, as you know, banker has extended the loan facility to ex-promoter entity. So the main arguments were on that front. Our lawyer was present, of course, and we are paying for their fees. So that cost is continuing. I think the next quarter we should have some hearing and if and we are quite hopeful that you know we will be getting something. That is on the Delhi High Court hearing.
Another thing you might have noticed is the listed RHT entity, which is the listed trust, that has been delisted now in Singapore as per the direction of the Singapore court. So to that extent, there will be some saving in the cost in the coming quarters, because the listing, but not in coming quarter, next year, because, you know, the entity is still remain until it is liquidated.
Any, any quantum you want to share, Vivek, or what, what those cost savings are?
Yeah, it will be in the tune of, I think INR 5 crore annual.
Understood. Thank you. Thank you, and all the best.
Thank you. The next question is from the line of Bansi Desai, from JP Morgan. Please go ahead.
Yeah, hi. Thanks for taking my question. My question is on, you know, some of our, our low-margin hospitals. We have almost 950 beds, which is one-fourth our, of our, you know, capacity, which are right now, you know, yielding less than 10% margins. I know each, you know, So the hospitals here, each of them has, you know, a unique set of, challenges. But, how is the management thinking about, you know, the turnaround here? And, should we expect this cohort to have a gradual improvement, or, you know, this should also contribute meaningfully to our margin improvement goal going forward?
Yeah. So, I, we have done some structural changes in this hospital, and that has start showing the result, but it is still below 10%. So from the negative EBITDA margins, you know, in the initial years, when 2019, 2020, that have start showing, you know, around 10% EBITDA margins. But still, you know, there is a lot of work still need to be done on the structure side, and it will need some time.
I don't think so there will be a dramatical improvement in the, you know, the profitability metrics for this hospital. But I think we are moving in right direction, and over a period of time, maybe in couple of years' time, we will see some result on, of our efforts.
Okay, thanks. And my second question is on, you know, the general pricing levels in the industry today. We've seen very strong ARPOB growth for the industry over the last four to five years. Is, you know, insurance regulators, you know, worried about these pricing levels? You know, are you having any kind of dialogues with them?
Are they seeing these prices to be high, or do you think, you know, these price increases are largely taken to meet the medical cost inflation, and therefore, you know, are justified from that perspective? So any color on, you know, the pricing dialogues that you could be having with the insurance regulator, or how they are, you know, viewing the pricing today in the industry?
Yeah. So, I will answer, and then Dr. Bansi may add to that. If you see the price increase is mainly attributable toward, you know, the specialty mix change and the type of procedures we are doing, which is the high-end procedures. So it is not because of increase in the price. Increase, if you see our cost, price increase at overall level, from the previous year, it is coming around 1%-1.5% only, so at a consolidated level. So of course, for Care, it will be coming around 4%-4.5%, which is linked to the inflation side.
So I don't see that type of challenge here, because of, as I said, that price increase is mainly, the ARPOB increase is mainly attributed toward, you know, the mix change in the center specialty mix and, you know, type of procedures we are doing. So.
Yeah. Other than that, I would say that, you know, the industry body level, these dialogues are continuously on, and I think this debate will be an ongoing issue. There is no endpoint for this, because as an insurance has an upper hand, they would obviously like to control the prices, but there is no specific stress at the moment.
Okay, thanks a lot. That answers my questions.
Thank you. Our next question is from the line of Bino Patihparampil from Elara Capital. Please go ahead.
Morning. Before I get into my question, just a recap on an earlier question on Agilus. I think the voice was a little muffled. You said there was some one-off or there was no one-off?
Agilus. Yeah, Agilus, there is a, I have mentioned, we can't disclose much, so there is a one-off impact in that financial.
Okay, there is one impact. Okay. Understood. Coming to my main question, I was just trying to understand a little bit between you know comparing the two slides where you have given the expansion plan. So, first I'm looking at FY 2024, you are adding about 237 beds, of which I assume this Ludhiana facility, 70 beds is included in that?
Yeah. Ludhiana is around 55 beds. Then there is a Mulund facility where we have added 70-80 beds there. Then we have operationalized in Kolkata facility, around 30-40 beds, and rest is, I think, BG Road in Bangalore, couple of facilities we have added there.
Okay, okay. So, Ludhiana is the only, new facility per se, right?
Yeah. And there is a Mohali also, we have added 35 beds in the existing.
In terms of new facility, Ludhiana is the only one, right?
Yeah, it is only Ludhiana, yes.
Okay.
As I mentioned, it's not new in the true sense, because it is having good synergy with the existing hospital.
Understood. When I look at the FY 2025, out of the 710, I assume roughly 350 will be the acquired Medeor Hospital, right?
Yeah.
Okay. So may I have a rough understanding of where the rest 350 would be spread out like?
Yeah. So I will say out of 700, almost 300+ beds of the Manesar facility. So we have this 300-bed acquisition in Manesar. So our plan is to not open the entire, you know, the beds at one go because of the cost optimization point of view. So there will be maybe, you know, we will start with 100 beds, and then we'll see how the ramp-up goes up.
And if we see an increasing, we may open up another beds during that period. And, you know, depending upon the ramp-up time, we will try to do better. Okay? And as I mentioned, it will be in the different, you know, time zone. So, like Manesar, we are, we will be opening maybe by the mid of the year.
So that type of impact will also be there. And the other major capacity expansion is coming in the Anandapur facility and the BG Road facility. And one, of course, the Faridabad, the extension thing, which will be operationalized in the next financial year. So, those things, I think we will be operationalizing, over a period of time. Maybe 40 beds each time we will come and start.
Under- understood.
It will be around 350 beds will be operationalized by the year.
Understood. Last question, you know, the biggest bed increase seems to be happening in the NCR, around 1,000 beds over the next two years, 1,000+ beds. Shalimar Bagh and FMRI, I understand, would be brownfields. Noida and Manesar. Manesar, are you referring to same Medeor, sorry, Noida and Manesar, are they completely brownfield or new facilities are-
Noida is existing hospital, and there we are expanding the facility. So it is a brownfield. Noida is brownfield. Manesar is the existing hospital, but it was not fully operational, and we are making it operational after doing some rejig in the hospital.
Understood. Okay, great. Thank you very much.
Thank you.
Thank you. Our next question is from the line of Nikhil Mathur from HDFC Mutual Fund. Please go ahead.
Yeah, so my question is linked to the bed expansion plan. What we see from your margin matrix over the years is that almost 35%-40% of beds tend to be in the less than 15% EBITDA margin range. Now, can you give some color on the bed expansion plan? How much of beds are getting added in this less than 15% EBITDA margin range? I suppose that there are—I mean, some of these facilities are operating at occupancies of more than 50%. So absorption of fixed costs via number of, more number of beds is perhaps the only way you can improve your margin structurally in these facilities.
Yes, so, let me clarify. The bed expansion is not happening in any of these hospitals which are less than 15% EBITDA margin. The bed expansion is happening in the hospital, which are operating at, almost 70%-75% occupancy level, and they are operating a decent EBITDA margin of 20%+.
Sir, but if your occupancy of 10%-15% EBITDA margin range facilities is 67%, less than 10% is also not too bad at 54%. So what are the chances of EBITDA margins in these facilities improving structurally? I mean, I fail to understand how that will kind of happen.
Yeah, that's why I said it will not be happening immediately, and it will be a gradual thing, and we have to give two to three years ' time for things to materialize. So it will not be immediate. I have not said it will immediately improve the EBITDA margin on these hospitals.
So, sir, on a two to three horizon as well, I mean, there is inflation that will catch up on various costs. There is bed expansion happening across the country. There will be poaching pressures as well on your talent and all. Unless you are saying that your ARPOB increases in these less than 10% facilities by substantially maybe 12%-13%, then perhaps your EBITDA margins can improve these facilities. But even on two to three, two to three horizon, how will that kind of happen?
Yeah, so, I have mentioned there are two, two reasons for increasing the EBITDA margin. Our ability to raise prices is limited, as you know. We are, we are operating in slightly different environment, so we are not expecting we will be able to increase the price at 5%-6%, at a consolidated level. Okay? So that, that is, the given assumption. But having said that, the EBITDA margin improvement will happen on the two fronts.
One is on the occupancy side. As our occupancy level goes up, we able to utilize our existing infrastructure and the cost base will be higher. And with that, you know, you, we will able to, you know, our cost and EBITDA margin will improve. That is, on one side. Secondly, and similar to that, if we are going for the expansion, brownfield expansion, that also lead to the margin improvement, because we are adding the bed in the existing infrastructure itself. So the cost base, cost will be shared with the larger base, and that will help in improving the margins.
Okay. And you mentioned that in the overall ARPOB increase, there is very less increase in pricing, it's more of mix. So can you give two or three examples of these mix changes which has kind of contributed to this ARPOB increase? I mean, not all, there could be many examples of this, but if two or three examples can you give on how this ARPOB is increasing?
Yeah, one is immediately in my mind is the oncology business. You know, oncology business is generally high ARPOB business, and the margin is slightly less. But when we see, you know, the gross revenue divided by the number of beds for this onco business, the ARPOB will be higher. So, that is one business which is definitely. And onco business is growing at a different pace for us, and we expect this will continue because of our focus on this specialty.
And similarly, you know, the neuro where we are quite strong and we are strengthening our presence in neuro, that is also lead to ARPOB increase. Then we have invested in lot of you know, robotic surgeries and things like that. That should lead to, you know, the high ARPOB business going forward.
Any CapEx number you can share in, let's say, last 12 months, 18 months, which has boosted your capabilities on these onco and neuro cases? Any CapEx number you can peg?
Yeah. So I can give you the current year number itself. For the nine months we have spent already, INR 450 crore in the CapEx, and I think a similar trend will be for the current quarter. So I think we are investing a lot in our technology. We have invested in the state-of-the-art Gamma Knife in our Tricity Hospital . We have invested in the MR Linac.
Two of the Linacs we have replaced, the Cath Lab, and, you know, we have a da Vinci robot we have invested. And the robotic surgery is also Ortho Robot also we have invested, five to six Ortho Robot we have ordered. So we are not hesitating in investment in the technology, and that is yielding the result. Dr. Kunal, you want to add here?
Mr. Mathur, does that answer your question?
Yes, yes. My question is answered. Thank you so much.
Thank you, sir. Our next question is from Neha Manpuria, from Bank of America. Please go ahead.
Yeah, thanks for taking my follow-up. You know, just one clarification, the, you know, the notice that we'd got from the, Anti-Corruption Bureau for, the Mohalla Clinic, is that's, is there some amount of that impact also, you know, in the December quarter, or that will flow through from this quarter onwards?
No, that is a major impact actually in that quarter.
In the December quarter, right?
Yes.
Okay, understood. My second question is just to follow up from the previous participants. If I were to look at the less than 10% margin bracket, if you could pick, you know, two of the two or three of the largest hospitals that are, you know, that probably drag the margin profile for the company, and, you know, what are the structural measures that you're talking about in each of these? That would probably help us understand it better as to why it'll take three to four years to improve performance in these hospitals.
Yeah, I will pick two. One is FEHI, and second is Jaipur one. And both are 300+ bedded hospital, and both have a good potential, as you all know. So, in both the like in Jaipur, we have a location advantage. It is located in a premium location. We have a good clinician team, and it is having a good brand equity in that region. So, we want... And the thing it is lacking is it is not having the full basket of specialties which we can also offer for the hospital of this size.
We are trying to add radio onco there, and that will take itself for one to one and a half years, you know, to plan that thing, because bunker and other thing will be required to be built, and then there will be some construction activity will have to happen. And we hope that with that, you know, this hospital should be moving above 15% EBITDA margin for sure. So that is on the Jaipur side. And secondly, on the FEHI side, we are trying to add, you know, other specialty. It is mainly a cardiac center.
We are trying to add other specialty so that, you know, the cost base can be shared with the, and with the increase in the revenues. This hospital again is having a very good brand equity, and it is a decent-sized hospital. So I think with this, attracting clinician talent for a cardiac business and then stabilizing them take some time, and that's why I'm saying it will take a minimum two years' time from now to, you know, start showing the result for these two hospitals.
Plus we are doing a lot of work on the cost side in both these hospitals. Whatever we can do on the cost side, on the manpower productivity sides, on the other cost initiatives which we are taking. So I think all those will start showing result maybe in a two years' time. They already start showing result. If you see, the performance is improving for both these hospitals.
Understood. Thank you so much, sir.
Thank you. Our next question is from the line of Harsh, from Bandhan AMC. Please go ahead.
Yeah. Hi, sir, good morning. I am now-
Sir, may I request you to use your handset, please?
Is it better?
No, sir. Your audio is muffled, sir.
Just one second. Yeah, is it better?
Yes, sir, please go ahead.
Yeah. Thank you. I just wanted to understand, to pick up from the previous question in terms of the Fortis Escorts and Jaipur, you are adding radiation oncology, cardiac division, and all these other areas. If you look at the overall margin metrics, let's say nine facilities below 15% margin, could you help us understand the ability to provide more and more high-end surgeries and clinical work?
C an this be expanded to, let's say, these other nine, 10 facilities which are making less than 15% margin, or this is more of a selective play across, let's say, only two or three facilities which are making low margin? Because the reason that I'm asking is that the feedback is that because of insurance penetration, there's a lot more affordability in Tier 1, Tier 2, Tier 3 cities as such. So in that context, if you could help us understand.
Yeah. So if I can answer this way, you know, out of the nine hospitals, two hospitals are where we are doing the expansion. One is the Faridabad one, where, you know, the operation is slightly affected because of the ongoing expansion, it is disturbing the existing operations. And as I mentioned earlier, this facility, the expansion program will be completed during this next financial year, early part of the next financial year.
And we expect, one, there will be higher bed capacity and the cost base will be shared with the higher bed. And secondly, you know, with this disturbance will not be there. So, I am 100% sure this Faridabad hospital will definitely move up in the ladder. Second is Ludhiana. That is more affected because of this seasonal impact, and that is not very poor us. So out of seven, two we can take out very easily.
Then remaining five, out of five, one we have already divested. Another is a small hospital in Bangalore, which is a you know actually a very small hospital, and we are looking for various alternatives, maybe including you know shutting it down also. So the two hospital we have already discussed. Another two hospitals are hospital where you know we have rented premises. So there is a rent sitting on it, and 6%-7% rent if we add. Because of that you know the EBITDA margin is slightly on the lower side. We are doing some work, and we are hopeful that at least 15% margin these two hospitals we will be able to do.
Yeah, so from a clinical aspect, Ludhiana, Faridabad, Jaipur and FEHI are the areas where you can possibly provide more in terms of the on-ground clinical options?
Yes, you are right. These are the four hospitals where, you know, the improvement will be slightly on the faster side.
Okay, sir. All right. Thank you. Thank you.
Thank you. Our next question is from the line of Bansi Desai, from JP Morgan. Please go ahead.
Yeah, hi. Thanks for taking my follow-up. I just, you know, needed one clarification. Don't know how much you can, you know, you can provide color on this. But for the private equity investors in, Agilus, the timelines of providing, exit to them about February of 2024, am I correct? And does that, stand, true, or does that hold with the IPO now?
Yeah. So as per the existing agreement, the timeline is April 2024, and as you all know, we have filed the DRHP waiting for SEBI clearance. So we are, but actually we are standing at that point now.
Okay, got it.
Ma'am, do you have any other questions, or your questions are answered?
No, I'm good. Thank you.
Thank you. A reminder to participants, ladies and gentlemen, to ask a question, you may press star and one. As there are no further questions, I now hand the conference over to Mr. Anurag Kalra for closing comments.
Yes, thank you very much, ladies and gentlemen, for your time. If there are any follow-up questions, please reach out to me or my colleagues. We'll be happy to address them as best possible. Thank you very much again, and have a good day.
Thank you. On behalf of Fortis Healthcare, that concludes the conference call. Thank you for joining us, and you may now disconnect your lines.
Thank you.
Thank you.
Thank you. Thank you, everyone. Bye-bye.